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CHICAGO, Nov. 28, 2012—Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today reported preliminary hedge fund performance for October 2012 as well as estimated asset flows through September. The Morningstar MSCI Composite Hedge Fund Index, an asset-weighted composite of nearly 1,000 hedge funds in the Morningstar Hedge Fund database, fell 0.8% in October, but was up 4.0% year to date as well as during the last 12 months.
“Hedge funds were a mixed bag in October, as managed futures strategies performed particularly poorly, but international equity-focused and short-biased funds posted gains on average,” Nadia Papagiannis, director of alternative fund research at Morningstar, said.
The Morningstar MSCI Systematic Trading Hedge Fund Index, which includes hedge funds that profit from price trends in the futures market, plummeted almost 4.0% in October, the worst monthly performance since March 2003. Price reversals in a number of commodities, including precious metals, natural gas, and wheat, hurt many trend-following hedge fund strategies.
Domestic stock prices also seesawed throughout the month because of disappointing corporate earnings and fears of the impending fiscal cliff. The SandP 500 and Russell 2000 Indexes declined 1.9% and 2.2%, respectively. Short-biased hedged funds profited, and long-biased equity hedge funds successfully defended against the market turbulence. The Morningstar MSCI North America and the Equity Hedge Fund Indexes edged up slightly at 0.01% and 0.2%, respectively, while the Morningstar MSCI Short Bias All Size Hedge Fund Index climbed 3.1%.
International equity strategies profited in October, as the central banks of Europe, England, Japan, Australia, and South Korea maintained accommodative monetary policies. The Morningstar MSCI Europe and Asia Pacific Hedge Fund Indexes rose 0.1% and 1.6%, respectively, in October. The Morningstar MSCI Emerging Markets Hedge Fund Index also rose 1.3% in October, driven primarily by the strong performance of Chinese equities.
October was a tough month for merger arbitrage strategies. BCE Inc.’s planned acquisition of Astral Media and Petronas’ targeted acquisition of Progress Energy Resources were halted by Canadian regulators. The Morningstar MSCI Merger Arbitrage Hedge Fund Index declined 0.4%.
In September, single-manager hedge funds in Morningstar's Hedge Fund Database saw outflows $1.1 billion. The global macro category experienced the heaviest redemptions among all single-manager categories, bleeding $546 million. The debt arbitrage strategies and long-only debt strategies had inflows of $147 million and $194 million, respectively.
October returns for the Morningstar MSCI Hedge Fund Indexes and September asset flows are based on funds that reported as of November 12, 2012. Hedge fund investors, managers, consultants, and advisors can access additional information through Morningstar DirectSM, the company’s global research platform for institutions.
Morningstar has approximately 11,000 hedge funds and funds of hedge funds in its database. Morningstar calculates hedge fund indexes by applying the MSCI Hedge Fund Index Methodology and Hedge Fund Classification Standard to Morningstar’s hedge fund database. These indexes demonstrate the performance of hedge funds to investors who have hedged their currency exposure back into U.S. dollars. The MSCI Hedge Fund Index Methodology classifies hedge funds by investment process, geography, and asset class. These indexes are not investible.
This release is not intended to be an offer or solicitation for the sale of hedge funds. The information is not warranted to be accurate, complete, or timely. When considering hedge funds, investors should consider various risks, including the fact that some products engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees, and in many cases the underlying investments are not transparent and are known only to the investment manager. The high degree of leverage that is often obtainable in trading can lead to large losses as well as gains. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.
About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individuals, financial advisors, and institutions. Morningstar provides data on more than 385,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 8 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its registered investment advisor subsidiaries and has approximately $195 billion in assets under advisement and management as of Sept. 30, 2012. The company has operations in 27 countries.